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Vashdeo R Bhojwani v. Abhyudaya Co-operative Bank Ltd. & Anr.

Civil Appeal · 2019 INSC 984Decided 2 Sept 2019
Civil Appeal No. 11020 of 2018
Justice Rohinton Fali Nariman · Justice Surya Kant

Background

A borrower's account was declared a Non-Performing Asset (NPA) by Abhyudaya Co-operative Bank in December 1999, and a Recovery Certificate for about Rs. 6.7 crores was issued in December 2001. The bank (through a subsequent merger) filed an insolvency application under Section 7 of the IBC only in July 2017: over 15 years after the recovery certificate was issued. The NCLT and NCLAT both admitted/upheld the insolvency petition, reasoning that since the default was "continuing," no period of limitation applied.

Decision Breakdown

The Supreme Court disagreed, applying its recent ruling in B.K. Educational Services v. Parag Gupta and Associates, which held that Article 137 of the Limitation Act (a three-year limitation period) applies to Section 7 and 9 applications under the IBC, with the clock starting from the date of default. The Court rejected the argument that Section 23 of the Limitation Act (dealing with "continuing wrongs") could save the claim, holding that the Recovery Certificate of 2001 had already caused a complete and final injury to the appellant's rights, so limitation began running from that date and had long expired by 2017. The appeal was allowed and the NCLT and NCLAT orders were set aside.

Lesson Learnt

Creditors cannot sit indefinitely on an old, already-crystallised debt (such as one covered by a recovery certificate) and then invoke the IBC's insolvency process years later: ordinary limitation rules apply, and a stale claim cannot be revived just by filing it as an insolvency petition.

Official source (sci.gov.in)View Judgment (PDF)

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